BACK OFFICE HEROES: Why Firms Should Prioritize Compliance


Credit Suisse, for many decades one of the world’s great financial institutions, collapsed this year under the weight of a broadening banking crisis—but the roots of its demise can also be tracked to years of regulatory issues and reputational damage.

In fact, when financial institutions are groaning under the pressures of exogenous forces like a massive reversal in global monetary policy, the first to break are often the ones that have suffered years of erosion from compliance issues, said Michael Pinsker, founder and president of Docupace.

“It seems like in some of these circumstances there are accumulations of really bad regulatory headlines—like there were around Credit Suisse over the past 10 to 15 years,” said Pinsker. “That can have a cumulative effect.”

The Compliance Failure Spiral

A damaged reputation leads clients to withdraw funds and scares away investors, said Pinsker, which can lead even a highly successful firm to spiral towards an ignoble end—which is one reason that the financial services industry, and wealth managers in particular, need to take compliance issues seriously.

Other reasons to focus on compliance, according to Pinsker, are that the financial services industry is one of the most regulated industries on the planet, and that most of the people working in the industry feel a responsibility to protect their investor/clients and provide services in their best interest.

Failure to comply can also lead to direct costs in the form of fines, legal costs and civil penalties, said Pinsker. Since many wealth management firms operate on thin margins, a serious regulatory fine can have an outsize impact on their business: dollars that might have been invested in better serving clients or growing the business will now go to regulators, attorneys and towards making any damaged parties whole.

“There are other reasons, including branding,” said Pinsker. “Any financial institution wants to make sure that they come across as a stable, trustworthy organization regarding whether or not they truly look out for their customers. Of course, the overall brand of an organization can suffer if they don’t pay attention to compliance.”

Reputational risk is multifaceted—not only do clients and prospective clients recoil from bad headlines, but existing advisors and staff become demoralized and may be more difficult to retain, and prospective staff and advisors become more difficult to recruit. Compliance failures can reverberate across an entire firm and bring a large, meticulously built business—like that of Credit Suisse—to its knees.

In short, compliance matters.

The Buy-In

In some cases, regulations are difficult to adhere to, said Pinsker, and compliance can become a tedious, manual, time-consuming process.

“At the end of the day, it takes an investment to be able to make a difference, to put technological guardrails around a process and to implement them in a way where the process is compliant, and it needs to start from the top because resources need to be allocated towards this end,” said Pinsker. “You need to make sure it’s a priority within the organization, that compliance drives certain initiatives within the business, and if you don’t have a buy-in from the top, then what happens is that you have people—they may even be managers—trying to solve problems without actually being empowered to do so.”

Without a buy-in from a firm’s leadership, compliance becomes an impossible task, said Pinsker, but also important is for a firm to be focused on compliance from top to bottom. That’s why many major institutions retain compliance officers and entire compliance departments—but the most progressive firms are implementing technology which helps ensure that their processes are always compliant.

Tech Is The Answer

“Deployed effectively, technology reduces the cost and effort of maintaining compliance,” said Pinsker. “Compliance, once a burden, then becomes an advantage: A competitive advantage for a firm which is able to handle all of these regulations with technology in an efficient manner. Not only are you reducing costs with technology, you’re also reducing error, which lowers the chance that you are exposed to the risks of being fined.”

Firms are going to end up spending money on compliance, said Pinsker, whether it be in the form of technology, additional staff, outside consultants or regulatory fines and legal costs—but a technological solution is the most cost-effective method of addressing compliance needs.

In some cases, technology can make a financial firm’s processes compliant by design.

“There are several rules which in many cases are pretty clear, in other cases the rules are open for interpretation but regulatory agencies have provided guidance to help firms interpret the rules,” said Pinsker. “So if you know the rules, it’s like a road lane. You can go a little bit to the right or a little bit to the left in terms of how you implement it, but you still need to be within the lines and moving in the right direction in terms of what you’re trying to accomplish.”

The advisor and back-office staff don’t have to think actively about remaining compliant within some processes, said Pinsker, because the process cannot proceed without certain compliance requirements being met each step of the way.

Where Docupace Comes In

Technology gives firms the ability to track communications and data to make sure information is being recorded, stored and used in a compliant manner.

“What sets us apart also is our ability to streamline audits for our customers, where, through technology we are able to actually provide access to regulators or internal auditors to be able to get to the information without it being an intrusive process,” said Pinsker. “For a financial firm, responding to regulator or internal queries about a decision or recommendation can be a significant drag if the information isn’t being managed properly.”

Docupace also has rules and regulations built into its platform representing the varying, overlapping jurisdictions and agencies that a wealth management firm may have to deal with, said Pinsker, and can also infuse rules and requirements laid down by individual firms into its system in terms of what kind of data is captured and how that data is stored.

“I think you want to be a firm that constantly looks forward, rather than backwards, you want to make sure you’re advancing your brand because you want to be an innovator, you want to attract talent and by doing so you also provide a better service to your customers,” said Pinsker. “To be that innovative firm, you have to invest in technology.”

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